Registration of foreign loans in Brazil - ROF

Transcription

1 Registration of foreign loans in Brazil - ROF - November, 2013

2 November Registration of Foreign Loans in Brazil - ROF (Registro de Operações Financeiras) The 2014 FIFA World Cup and 2016 Olympics have turned the focus of many infrastructure investors and lenders to projects in Brazil. In accordance with a report published by the Ministry of Finance on February, , infrastructure investments in Brazil have tripled in real terms over the last ten years, reaching about 100 billion Reais in Investments should also continue after the sporting events have concluded, particularly since the Brazilian government has acknowledged that economic growth can only continue if infrastructure needs are met. The same report also forecasts that investment projects in infrastructure will add to around 235 billion US Dollars in the coming years. While the Brazilian Development Bank (BNDES) will likely provide a great chunk of the investments, there will be much need for foreign investment as well, especially in the form of loans. While addressing the numerous conditions precedent to the disbursement of loan funds to Brazilian entities, the relevant parties often underestimate the importance of one of them: registering the transaction with the Central Bank of Brazil (Bacen or Central Bank). Although it is generally a simple procedure, failure to complete the mandatory registration process and obtain a registration number through the Central Bank on-line electronic registration system (RDE-ROF) may prevent the disbursement of the loan and ultimately delay the commencement and completion of a project. In addition, inaccuracies in the registration documents can prevent foreign lenders from receiving payment of principal, interests and other amounts when due. This article outlines the procedure for registering foreign loans in Brazil and summarizes the associated regulatory framework. Furthermore, it addresses the issues that most commonly give rise to inquiries on the subject. Foreign capital in Brazil Brazilian Law No. 4,131, enacted September 3, 1962, regulates foreign capital in Brazil and remittances of values abroad. It defines foreign capital as any goods, machinery or equipment that enters Brazil and is intended for the production of goods and services, as well as any inflow of funds to be used in economic activities 2. Equal legal treatment is awarded to both foreign and national capital, but all foreign capital, regardless of the form of inflow, must be registered with the Central Bank. This means that both loans and equity investments, as well as guarantees from multilaterals, must be registered. Registration is conducted with the sole purpose of allowing Brazilian authorities to analyze and examine the flow of capital into and out of the country. For many years a preliminary examination was conducted, but that requirement has been eliminated, and now registration need not be 1 See generally Ministry of Finance, Infrastructure in Brazil Projects, financing instruments, opportunities, available at Final.pdf. 2 See generally Central Bank of Brazil, International Capitals and Foreign Exchange Market in Brazil, available at Brazil.pdf (hereinafter Central Bank of Brazil ).

3 November reviewed or approved by governmental entities. Indeed, no other form of authorization or examination is required for such transfers of capital. 3 The registration is made in a declaratory form utilizing the Central Bank s Information System (Sistema de Informações do Banco Central Sisbacen) and consists of the registrant inputting relevant information to identify the parties and characterize each transaction. The electronic platform used to perform the registration is the Electronic Declaratory Registry (Registro Declaratório Eletrônico, or RDE). Depending on the form of investment, a different module of the RDE is used. While equity investments are registered in the Foreign Direct Investment (Investimento Direto Externo, or IED) Module, foreign loans are registered in the Registry of Financial Operations (Registro de Operações Financeiras, or ROF). The Central Bank keeps record of all the registrations, and has the authority to request any additional information. It also publishes each registration every month, along with the completed cancellations from the preceding month. 4 The report contains the RDE number, the names of the Brazilian companies and their foreign counterparties, the domicile of the foreign company and the currency in which the registration was made. Failure to provide the required information, or any irregularities, omissions or inaccuracies in the information provided can result in the assessment of fines. Moreover, completing the registration process does not exempt the responsible parties from complying with all other regulations applicable to foreign capital, including tax obligations. Registration of Foreign Capital in the Form of Loans Registration of foreign loans through the RDE-ROF is regulated by Resolution No. 3,844, enacted on March 23, 2010, and by the provisions of Title 3 of the International Capital and Foreign Exchange Market Regulation (Regulamento do Mercado de Câmbio e Capitais Internacionais, or RMCCI) 5. Foreign loans are defined as loans granted to individuals or legal entities domiciled or resident in Brazil, by individuals or legal entities domiciled or resident abroad. As mentioned above, these loans, which can be made directly or through the issuance of debt abroad, must be registered in the ROF module of the RDE. Once the registration is complete, the system generates a number (the RDE- ROF number) for each registrant. Except for transactions involving public entities or agencies, foreign loans are not subject to prior approval or accreditation with Bacen 6. Nonetheless, without the registration, the funds cannot be disbursed to the borrower s account in Brazil. In addition, a valid RDE-ROF number and updated registration information are prerequisites for any transfer of funds into and out of the country. The RDE-ROF number must be included in the exchange agreement, and the Central Bank may cancel or suspend the number if it is not properly registered or updated. 3 See Central Bank of Brazil, supra note 2. 4 Past registration reports and completed cancellations are available at 5 English versions of Resolution 3,844 and of the RMCCI are available at 6 Please note that, while foreign loans are not subject to prior approval due to their external nature, other aspects of a particular transaction may subject the loan to additional restrictions imposed by the Central Bank of Brazil. For example, subordinated loans, both national and foreign, are subject to prior approval in accordance with the pertinent legislation.

4 November Party responsible for the registration The registration must be performed by the borrower or its representatives. Accessing Sisbacen requires previous accreditation, and the information about the parties must also be included in the Registry of Physical Persons and Legal Entities International Capital (Cadastro de Pessoa Física ou Jurídica, Residente ou não Residente no País, or Cademp). This can be a burdensome process for those who are not familiar with the Central Bank s electronic platforms. For this reason, although a borrower can seek accreditation in Sisbacen as a special user and perform the registration itself, the borrower usually appoints a representative to act on its behalf. Most banks and other financial institutions, such as brokers, provide this type of service at a fee. While third parties may be hired to execute the registration, the borrower must be aware that it is the sole party responsible for the accuracy and completeness of the information. Unfortunately, inaccuracies and omissions are not uncommon, and they should be corrected prior to disbursement. Lenders should also be cautious during the registration process and ensure that all documentation comply with the appropriate procedural requirements. As mentioned above, the RDE-ROF number and accuracy of the information provided are a prerequisite for any cross-border inflow and outflow of funds. This is particularly important because the transfer of funds abroad is limited to the amount necessary to fully pay the principal, interest and any other fees related to the transaction. If the amounts, terms or methods of calculation are incorrect, the lender may be prevented from receiving the funds in their entirety when they become due. Currency Foreign loans must be registered in the currency in which the inflow of funds will effectively occur, and separate registrations must be obtained for tranches involving different currencies or different financial conditions. Such registrations must then be linked to each other. Accordingly, in a multi-tranche disbursement, multiple registrations must be made. In addition, each registration must reflect the appropriate denomination of the debt. If, for example, a Brazilian entity issues a debt instrument abroad denominated in Reais, the ROF should reflect that particular feature. The ROF system has a specific module for the registration of issued debt in local currency. Information provided to Bacen In order to complete the registration and obtain the RDE-ROF number, the borrower must provide the names of all parties involved in the transaction (including agents and guarantors), the financial terms and conditions of the debt, including the term and form of amortization of principal, interest and any applicable fees, together with any other information required by the Central Bank. There is also an additional field for including supplemental information that the parties may deem necessary to the transaction. Because transfers will be authorized in accordance with the transaction described in the ROF, it is advisable for registrants to include every detail that may pertain to the flow of capital. While the parties are free to negotiate and define the terms and conditions of the loan, including renewals, the Central Bank has established that the costs and other conditions of the transactions that are subject to registration must be compatible with international standards and be clearly defined in the registration form. Open terms and undefined interest rates are not allowed. This, of course, does not imply a limitation on the permissibility of floating or other variable interest rates. There is a specific field where the floating rate and the margin can be described.

5 November Timing issues As it is a prerequisite to the inflow of funds, the RDE-ROF number must be obtained prior to the disbursement. Nevertheless, the ROF has an expiration date. If the funds are not disbursed 60 days from the registration, the ROF is automatically cancelled. Interestingly, once the ROF is concluded, the RMCCI allows for the payment of accessory charges even prior to the disbursement of the funds. In other words, provided they are properly declared in the registration, charges such as commitment fees incurred by the borrower at the execution of the loan agreement can be paid before disbursement of the principal. Once the funds have been disbursed, the borrower must include a payment scheme in the system, which contains the term and amount of each installment of principal and interest that will be paid to amortize the loan. This information is indispensable for the remittance of funds abroad. Amendments prior to disbursement Before the loan is disbursed, the ROF can be altered even if it has been completed. Specifically, there is an option in the system that allows for corrections and necessary alterations. The Borrower or the third party hired to perform the registration may oppose performing any corrections prior to disbursement, but lenders should insist on them, as they are not only authorized, but are also necessary for proper compliance with the regulations. After disbursement, any changes to the terms and conditions of the transaction, including maturity date, renewals, renegotiations and assignments of the debt, must be reflected by the original borrower in the ROF. This requires cancellation of the ROF and the creation of a new record. Cancellation of the ROF The amortization of principal, either by remittance of funds abroad or payment in a local account, as well as any payments of interest and fees, must be recorded in the electronic registration system. Each installment in the payment schedule is written off in real time as the payments are made, and once the loan is repaid in full the ROF is cancelled. When an exchange agreement is processed using the RDE-ROF number, the write-off of the installment or the cancellation of the ROF, as applicable, is automatic. The registration of the payment can also be done directly in the system. After the cancelation of the ROF, the borrower must keep all documentation that constitutes evidence of the information declared therein. Such information must be available for the Central Bank for a period of five years, starting from the date of the full repayment of the loan. Conclusion The registration of foreign loans with the Central Bank is not a complex process, but it deserves appropriate attention. Failure to comply with the requirements discussed above can halt the transfer of funds and prevent not only disbursement, but also the repayment of the loan. Although lenders are not primarily responsible for registration, they have a special interest in ensuring that the ROF is properly completed and that all of the details of repayment are accurately described. They should act prudently and ensure that all transaction details are documented and accurate, including all periods, amounts and methods of calculations. This is particularly true when a third party is hired to perform the registration. Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and, each of which is a separate legal entity, are

6 November members ( the Norton Rose Fulbright members ) of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients. References to Norton Rose Fulbright, the law firm, and legal practice are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together Norton Rose Fulbright entity/entities ). In respect of this bid, advice and services will be provided by Fulbright & Jaworski LLP (the Contracting Party ) in accordance with its terms of engagement. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity.

7 nortonrosefulbright.com Contacts USA Special Legal Consultant Washington D.C. Tel